Basel to simplify liquidity rules for banks

The new rules are expected to make banks less vulnerable to financial crisis.

Mervyn King, chairman of the BCBS group and governor of the Bank of England. Photograph: Peter Macdiarmid/Getty Images

The Basel Committee on Banking Supervision (BCBS), which represents regulators from 27 countries, has agreed to simplify its rules relating to banks' minimum quantities of cash and liquid assets.

The new rules, which will be implemented in phases from 2015, will allow banks to hold a wider range of assets, corporate bonds and residential mortgage-backed securities. They would also compel banks to hold more liquid assets than they did in 2007, when many of the large institutions had scarcely enough funds to cover repayment costs from even small numbers of depositors and creditors.

The agreement is part of the Basel III reforms, which aim to prevent financial shocks such as the 2008 collapse of Lehman Brothers and the 2007 collapse of Northern Rock by requiring lenders to ensure they have enough capital to absorb losses.

Mervyn King, chairman of the BCBS group and governor of the Bank of England, said that the timeframe ensures that the rules "will in no way hinder the ability of the global banking system to finance the recovery".